Liquefied gas to dilute Shtokman costs

One of the largest projects in Russia’s Artic shelf, the Shtokman field is facing competition from shale gas. But Peter Mellbye, VEP at Statoil, says a complete switch to a liquefied natural gas (LNG) solution in gas transportation should help.

Fast development of the shale gas industry, especially in the US and China, creates a strong challenge to bring the cost of the Shtokman down “to a level where the project is economically feasible. Definitely more than 10%,” Mellbye specified to Business RT.

A partial switch to shale gas by the US – a key market for the Shtokman – has already caused problems for the project back in 2010, when prices for traditional gas went down. This put off the start of development works till 2013.

The current cooperation agreement to develop the deposit says 50% of extracted gas will be delivered in traditional form, while the remainder will follow as a LNG solution.

As the deal is being revised, it might be a good moment to switch to a more practical solution for gas deliveries, says Peter Mellbye. “Gazprom has decided that we should now look at a solution with 100% LNG instead of the previous concept of 50% LNG and 50% pipeline gas,” which should finally be agreed at the St. Petersburg Forum in June, he added.

Having a 100% LNG project at the Shtokman deposit will be more reasonable from both a commercial and a market perspective, the Statoil VEP said. “It makes it possible to access a broader spectrum of markets than is possible with pipeline gas. And of course to have a solution with both LNG and pipeline gas is a more costly solution,” he explained.

Among the parties to the Shtokman project are Russia’s monopoly Gazprom (51%), as well as French Total (25%) and Norwegian Statoil (24%). The partners agreed to jointly explore and develop one of the world’s largest gas deposits located in Russia’s Arctic shelf, which will fill Nord Stream with supplies to Western Europe.